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The Illegal and Unsavory Practice of Referrals and Kickbacks in the Real Estate and Mortgage Industry

February 23, 2012 By Leave a Comment

Illegal Mortgage and Real Estate Fees The one that bothers me a lot is the practice of paying referral fees to unlicensed people (friends, co-workers, family members, etc).  In most cases, this practice is illegal and for good reason.

As you know, buying a home and obtaining a mortgage is complicated and many consumers rely on real estate agents and mortgage brokers to help them through this process. Consumers trust their real estate agent or mortgage broker to assist them in getting the best and most cost effective settlement services available to meet their needs. Unfortunately, this does not always happen and consumers are often steered to higher priced settlement services.

RESPA (The Real Estate Settlement and Procedures Act) is an act that was passed by congress in 1974. It was created because various companies associated with the buying and selling of real estate, such as lenders, real estate agents, construction companies and title insurance companies were often engaging in providing undisclosed kickbacks to each other, inflating the costs of real estate transactions and obscuring price competition by facilitating bait-and-switch tactics.

There are many examples of such prohibited practices, but the one that I am referring to is the following:

Real estate agents or mortgage brokers paying “finders fees” to friends and past customers for referring new business.

 

Other examples include:

  • Title companies, mortgage brokers, lenders offering real estate agents a free chance to win a contest or prize, such as trips, money, coupons and discount certificates.
  • Mortgage brokers, lenders, title companies offering to assist real estate agents promote themselves or their property listings, by providing such things as postcards, virtual tours, and marketing materials.
  • Mortgage brokers, lenders, title companies offering to pay or defray any costs that real estate brokers or agents would otherwise have to incur, such as providing continuing education or paying disproportionate costs for joint advertising.
  • Mortgage brokers, lenders, title companies providing “thank you” gifts to real estate agents for referring business.
  • Mortgage brokers or lenders paying real estate brokers or agents a commission for referring a loan.

 

Section 8(a) of RESPA prohibits giving and receiving any fee, kickback, or thing of value for the referral of settlement service business. A violation of RESPA carries the potential for up to a year in jail and a $10,000.00 fine for each involved party.
The highly regarded real estate law treatise by Miller & Starr, California Real Estate, citing RESPA, concludes, “The Act does not prohibit a cooperative brokerage and referral agreement between real estate brokers where one broker pays a referral fee to another broker. However, a broker cannot pay any consideration to an unlicensed finder even though such payment may be legal under state law.”

Also under California law, a broker can pay compensation only to another broker or to a duly licensed salesperson through the employing broker. Even if someone is otherwise entitled to a commission split, if they are unlicensed at the time the compensation is earned it is illegal to compensate that person. It is also illegal for a broker to employ or compensate an unlicensed person for acts that require a license.

 

I believe there are 2 key reasons for this law:

  1. Such referral fees obscure price competition. The unlicensed person has monetary incentive to refer any real estate professional to any client, regardless of what he/she really thinks of that professional’s ability to serve that person who needs the given real estate or mortgage service. In other words, it’s likely that they are basically referring people to that professional for the money that he/she has to gain (for the referral), rather than the ability or quality of the professional in question.  Also, unlicensed people generally lack the ability to judge who is a “good” or “appropriate” real estate professional for a given client since they themselves are not a professional in the industry.
  2. Such referral fees inflate the costs of real estate transactions and services. Since the Realtor or loan person knows that he/she would have to pay the referring person part of the commission he/she would be earning for the service, he/she may charge the client a higher amount for the service to make up for the amount that needs to be paid to the referring person.

 

While there are certain exceptions to the law (regarding unlicensed people receiving referral fees), I believe that it would be unwise to attempt to circumvent the law through these exceptions. As a Real Estate or Mortgage Professional, rather than even give the hint of doing something illegal, it would be better for you to protect your license that you have worked hard for, and not cross the line.  It’s not worth the risk!  Remember, it’s both an unsavory and an illegal practice and RESPA violations carry the potential for up to a year in jail and a $10,000.00 fine for each involved party. It’s also best for the parties involved (in the given transaction) to keep the unlicensed/non-professional referring person completely uninvolved in the transaction.  By receiving a referral fee, that person would inherently become involved in the transaction (and they don’t “belong” in it).

There have been many RESPA reforms to Real Estate and Mortgage Lending laws over the past several years.  These reforms were necessary to prevent Real Estate and Mortgage professionals from taking advantage of consumers to the extent that a real estate bubble can be created.  Illegal kick-backs and referrals are at or near the top of the list of the reforms.

Moving forward, the elimination of illegal referral and kick-back fees will help to create a more transparent, professional, and even playing field among real estate professionals in the industry. Real estate professionals and consumers alike need to be aware of both the laws against such practices and the reasons why these laws exist.

 

George Sudol  is the Broker/Owner of Bay Area Realty Services, a successful San Francisco Bay Area residential Real Estate firm. He also owns and operates Bay Area Mortgage Alliance, a California residential mortgage lending brokerage. See more at www.ba-realtyservices.com , Email george@ba-realtyservices.com, or Call 650-242-4079

 

 

Filed Under: George Sudol Bay Area Real Estate Tagged With: , , , , , ,

As a Homeowner How Do I Know If I Qualify for HARP 2 Refinancing?

February 22, 2012 By Leave a Comment

Harp 2 Refinancing QualificationsThere are new guidelines being released to qualify for HARP 2.
YES.  And more people will qualify for HARP program than ever before.
YES. The question remains…  “Will I qualify HARP 2?”
Here is how you can begin to know….


Step 1:
Who Owns My Loan?

You need to know if your loan is owned by either Fannie Mae (FNMA) or Freddie Mac (FHLMC).
It is not something you will know off the top of your head.  You must check the websites below AND call your lender to ask, “Who OWNS my loan?”  You are trying to find out who the investor is.  This is a different party in many cases from the company that collects your payments (the servicer).  Enter the information into each of the forms through the links below and also call your current servicer unless you get a “yes, match found” answer.

http://www.fanniemae.com/loanlookup/
https://ww3.freddiemac.com/corporate/

Step 2:
What if Fannie and Freddie Don’t Own My Loan?

If, at some point, you get a YES answer to either of these questions:  “Does Fannie Mae own my loan?”  or “Does Freddie Mac own my loan?”then you can proceed to step 3.

If you are getting a NO answer to the above questions you need to continue to try both links repeatedly (as FNMA and FHLMC both acquire loans) AND you need to call your lender. A NO answer generated from the forms on these links does NOT necessarily indicate that your loan is NOT owned by either of these entities.  Just entering information differently (IE misspelling, typos, abbreviations or missing information) from how it is in the lender’s system can produce a NO answer…

If you get a NO you will still want to consult with an experienced broker who works with many different lenders and can ascertain whether or not there is another program available to you. There ARE other programs available that do not involve either of these entities.  There are also potentially ways that you can improve your own situation to qualify for a refinance (IE paying down the loan, getting a second job, paying off debt, getting a “gift” from family, etc.).  If you get a NO you can also ask your current lender if they participate in the federal Making Home Affordable Program.

A definitive NO here is the end of the road for a HARP refinance for the time being but be sure to keep in touch with those sites and with an experienced lender to determine if something has changed.  If one thing is for sure, things change!  It has happened again and again over the last half decade as these programs have rolled out.

Step 3:
If you discover YES My Loan is Owned by Fannie Mae or Freddie Mac

Your loan IS owned by Fannie Mae or Freddie Mac.  Now what?!
You will potentially qualify under one of the following programs:

FNMA: DU REFI PLUS OR REFI PLUS

FHLMC: FREDDIE MAC RELIEF (I or II) OR FREDDIE MAC RELIEF OPEN ACCESS (I or II).

The difference between the “OR” programs above relies on who the servicer of the loan is.  One program is only available to the servicer of the current loan (sometimes through a broker) and the other is available to any lender who offers the loan product.  Some servicers do not exist any longer and some do not offer the specific program a borrower might need or the guidelines needed to qualify.  This is where it can get dicey and an experienced lender is necessary to help you determine where your loan qualifications might fit it.  And NO Lender is omnipotent so NEGU (never ever give up).

The first answer is TALK to an experienced lender, maybe even more than one.  Each bank offers a DIFFERENT VERSION of this product, therefore going to one bank, with one set of guidelines, may not be your solution.  One bank will still only go to 105% of the current home value with your loan balance, while another bank will go to 125% of the current property value.  If you have a second mortgage, that changes what you qualify for, as well.  Again, some banks will go higher on the COMBINED loan to value (meaning the balance now including the second mortgage loan balance versus the current propert value).  I must also add:  there are situations where I refer a client back to their original lender because the guidelines and/or the pricing might be better but I would definitely prefer to talk through the situation with the client FIRST to determine what makes the most sense for their particular situation.  Most borrower wants to talk to their servicer AND a trustworthy and experienced broker.  Sometimes a servicer will have different guidelines for their borrowers with loans already with them versus loans that are owned by a different lender as well.  Try to be sure you have an experienced loan officer with the servicer as well.  Not all loan officers are equal in terms of experience and knowledge and talking to the wrong person can get you the wrong answer as well.

I am seeing pricing and guidelines vary GREATLY from one lender to another.  Just because Fannie or Freddie “release” new guidelines does not mean that any specific lender will offer the program just as they release it.  Lenders have overlays, rules in addition to the guidelines, that will sometimes limit what is available through their bank.

AND, just because your loan is owned by Fannie Mae or Freddie Mac does not mean you qualify otherwise.

You will need to meet some other qualifications:

For example, your loan has to have been originated before 6/1/2009 if it is owned by Freddie Mac.  You can only take advantage of the program one time.  And your overall credit risk profile will still have to qualify through the electronic processing system as well.  It sounds like this system may “relax” sometime in March.

My recommendation is to talk to your lender now and get your HARP 2 refinancing application going.  When (and if) the flood gates do open on HARP 2 program, you want to be ready to go.

Remember, persistence is KEY when it comes to getting refinancing especially under HARP!  As is the EFFORT to keep trying!  AND, when you find a solution, do not wait for something better to come along.  SNATCH IT UP as fast as you can!

Author

Sheila Goulart- Siegel
President and Senior Loan Consultant
Synergy Financial Group
(949) 388-9254 ext. 101
(949) 388-9372 fax
DRE license #:    01247838
NMLS license #:  239691

Filed Under: Sheila Goulart-California Mortgage Specialist Tagged With: , , , , ,

Is your building ADA compliant? And why it is important to follow ADA guidelines for buildings and facilities.

February 20, 2012 By Leave a Comment

For commercial property, facility managers and building owners it can be confusing to understand ADA Guidelines however with the right help ADA can be simple.

ADA, stands for American with Disabilities Act a law passed in 1990, ADA Consultant such as Bassam Altwal, Assoc. AIA, CASp is the principal at Cal Accessibility can simplify the process and make sure the facilities follow ADA guidelines and lower the risk of getting fined or even worse having a costly lawsuit.

We had a chance to sit down with Bassam and ask him some questions to understand better what he does and why it is important to make sure your business meets ADA guidelines. Below are some of his answers.

Why does a building need to be ADA compliant?
18% of the national population of the USA is permanently disabled. An additional 8% is temporarily disabled (accidents, medical procedures, etc.). Disabled are the largest minority group in the country and if you add 13% of the population are over the age of 65 (that use accessibility services) the demography becomes much more significant. The disabled demographic command $175 billion in discretionary spending – double the figure for teenagers.

It is not just the disabled – we will all age, living significantly longer and generally healthier lives but we cannot escape the frailties of aging. A senior who has no difficulty getting about on the flat may find a short flight of steep steps insurmountable but may not admit it to anyone and go elsewhere with their business. The advance guard of the aging Baby Boomers are already beginning to enter this stage of life ensuring the growth of this market segment for decades.

If you have had to go anywhere with toddlers or a stroller, pulled a roller suitcase into a hotel, carried a heavy or bulky package into a building or helped a senior get about for more than half an hour you already appreciate that , ADA Accessibility also makes moving around a lot easier for even the young able-bodied.

If you buy or lease a commercial building can we presume the previous owners or tenants made it ADA compliant?
While many people are aware of the ADA, which was passed into law in 1990, even those whose properties, facilities or businesses are directly affected by it have an incomplete understanding of its requirements and so are exposed to the risk of civil penalties and private lawsuits. Some of the more common misconceptions are what people think is “grandfathered” conditions, not so.

Well, not only is it the Law to comply with ADA it also makes perfect commercial sense for owners and their tenants to cater to such a significant number of potential customers. If the carrot of almost 40% demography and Tax rebates is not sufficient consider  Civil penalties up to $55,000 for a first and $110,000 for each subsequent offence may be imposed through Department of Justice enforcement, or $4,000 up to $12,000 per access violation plus attorney’s fees through the California Civil courts (Unruh Civil Rights Act), in California alone over 12,000 private suits have been filed under the ADA, (one lawyer in Sacramento filed 300 law suits) typically these actions seek not only to have infractions corrected but also an award of monetary damages to the plaintiff. The cost of settling either in court or out of it will far exceed the cost of paying for any remediation. California accounts for 42% of all ADA litigation nationwide.

How can business owners ensure compliance and reduce chances of getting sued?
Businesses should hire a  certified access specialist (CASp), who is a person business owners can be assured has been tested and certified by the state as an expert in disability access laws. SB 1608 (State Bill)   sets up a process whereby business owners can voluntarily hire a CASp to inspect their buildings to ensure compliance with disability access standards and obtain an inspection report as proof they did so.

If a business owner does get sued, how does SB 1608 help to encourage early resolution of the lawsuit?
Even when businesses have reduced their chances of a lawsuit by hiring a CASp to ensure their building is in compliance and posting their CASp sign, unfortunately, there is never a 100 percent guarantee of not getting sued; however, SB 1608 gives CASp-approved businesses some tools for helping to resolve unnecessary litigation and encouraging early resolution, like for example businesses that have been CASp-inspected before being sued — and only those businesses — are entitled to request a 90-day stay of the lawsuit and an Early Evaluation Conference (EEC).

Who enforces ADA ?
The Department of Justice, the ultimate enforcement agency of the ADA, it encourages businesses to assess what needs to be done and then to have in place plans, procedures and policies to guide implementation. In other words enforcement does not insist on complete and immediate compliance regardless of cost. On the other hand doing nothing or taking half-hearted, slipshod measures are an invitation to lawsuits and substantial penalties and costs. The other entities to enforce the ADA are private citizens through their lawyers and the court system by filing a lawsuit.

What other information can you give us?
Don’t delay taking the first crucial step on making sure business property or facility meet ADA guidelines. It is the Law, Engage a qualified CASp firm to do an ADA survey of your premises and give you a confidential report of findings, solutions and estimates to base your implementation plan on; make sure the firm is qualified and have the proper insurance and experience. Get ready to welcome the Disability Demographic who will welcome your changes.

For more information please contact
Bassam Altwal, Assoc. AIA, CASp is the principal at Cal Accessibility. (A full service ADA consulting in the San Francisco Bay Area, California. bassam@calaccessibility.com (415.310.3010))


ADA Consultant

 

Filed Under: Jo La Real Estate Investor Tagged With: ,

Real Estate Market Report for Los Altos, CA

February 3, 2012 By Leave a Comment

Los Altos is one of the strongest real estate markets in Silicon Valley. It’s one of the most popular destination towns for both local and relocation clients, offering large lots, a rural feel, and one of the best school districts in the state.  Los Altos is one of the most expensive markets in the country and difficult to get into at any price point.  Buyers shopping in the Spring of 2011 were faced with multiple-offer situations, homes selling well over asking price, and a limited selection of inventory in all but the most expensive price ranges.  There were sales of single-family homes under $1 million for a few heavily discounted properties in bad locations to homes sold at $4 million or more.  There were many new or newer homes sold this year and those helped raise the bar across the board.

Here is a summary of market, by the numbers:

  • Average Selling Price:  $1,769,436 (up 4.8%)
  • New Listings:  386 (down 12.3% from 440 in 2010)
  • Homes Sold:  309 (down 7.5% from 334 in 2010)
  • Average Days on Market:  40 (down 12.3% from 53 in 2010)

Los Altos Real Estate

Commentary: The most important statistic is that the average sales price for new, single-family homes was up 4.8% for the year. Honestly, if not for several homes that are more like townhouses sold in the $900K-1.1M range, I think that figure would be a lot higher.  That figure is going to continue to increase in 2012 as sales in December were very strong and the year ended with substantially depleted inventory.  Buyers in Q4 had almost as hard a time finding homes as those in the Spring.  The Los Altos market was up 1.9% in 2010 and with the current shortage of inventory, 2012 is likely to be the third year of increases.

The biggest factor driving Los Altos home prices is inventory, specifically a lack of it.  There are not enough homes to meet buyer demand and that was exacerbated last year.  New listings were down over 12%, even with a slight reduction in homes sold, that’s still a nearly 5% gap in demand.  When you look at how many homes had sales prices over the asking price, it’s roughly the same number.

The number of days on the market tells the demand story. The days on market statistic is down to 40 which is among the lowest of any town in the area.  Given that most homes go on the market by Thursday, have tour on Friday, open house on the weekend, and offers the following Tuesday, the average home is actually selling in 5 days with 35 days for financing.  What’s interesting about that is more and more homes are selling for cash.  That’s getting more closings down to 21 days or less, which is bring this number even lower.  Buyers in 2012 can expect this trend to continue.

Los Altos Real Estate Market ReportThis report does not include a price per square foot figure, because it is a much more detailed number than just the generic figure for all homes sold.  I break down the sales by size and age of home which gives an accurate view of that  calculation.  That analysis will appear in a separate article.  If you want the details before that is published, call me.  I think that statistic has some value in negotiating during the following year but only as a guideline.

 

Author

Bryan Robertson, Broker Associate
ePro, Realtor, Developer
Sereno Group Real Estate

 

Filed Under: Bryan Robertson Los Altos Real Estate Tagged With: , , , , , ,

HARP 2, Help For Homeowners Who Are Underwater: Interview with CEO Fred Glick of U S Loans Mortgage LLC, U S Spaces, Inc & and on the Board of Directors of NAIHP.org

January 30, 2012 By 7 Comments

Recently we had the opportunity to talk to Fred Glick about Harp 2 and underwater home owners it will benefit.Harp 2

Few would dispute that Fred takes it on himself to be one of the leaders in fighting and lobbying for a more ethical mortgage and real estate industries.

A seasoned mortgage and real estate professional he manages a commanding position in the industry and has been on CNBC, NPR and has been quoted in numerous publications, voicing his views at the White House and Congress to see positive change in the industry and push out the unethical brokers who have shady practices.

He recently with others helped bring forth HARP 2. A mortgage loan where homeowners that are underwater who could not refinance before will benefit.

JL: With HARP 2 now in place what developments do you see ahead in the housing industry?
FG: With people’s ability to refinance homes instead of having them go to foreclosure, people will stay in their neighborhood, spend money locally and make their communities better so prices can stabilize or go up.

JL: Analysts and Regulators are saying they expect 1 million more refinances then would have closed under HARP, with an average loan balance of $150,00 to $175,00 do you agree with this?
FG: Hard to say but if properly marketed, that could be a good number

JL : Does the consumer need to worry about deadlines to refinance under HARP 2 ?
FG Yes. They must do it by the end of 2012. Rates are ridiculously low now so why wait. Also, I am sure people are paying very high rates that will be eligible for these loans because they have to have been originated before May 2009.

JL: Lenders have been fond of adding fees to HARP loans called by Fannie and Freddie “loan level price adjustments” which where averaging 2%. I hear under HARP 2 the fees are reduced to 0% on loans 20 years or fewer, and 0.75% for mortgages for more than 20 years and for ARMs
FG: That is correct. That makes the rates not too high.

JL: Daily Properties readers have probably read one of many of the stories reporting on mortgage brokers and mortgage companies’ fraudulently adding extra fees to loans, how a consumer can tell if the fees added to their loan are fair and not illegal.
FG: In the beginning of their transaction, there is a good faith estimate. Brokers and lenders are locked into those fees.

JL: What if a loan is not owned by Freddie or Fannie?
FG: As of right now, there are no programs but the President has just announced generically, a program he wants to start. Details will follow. But, if you have an FHA loan, you can possibly get what is called a streamline loan to lower your rate.

JL: Will people who defaulted on their mortgage be able to get help under HARP 2?
FG: No. You must be perfect in your payment for the last 6 months and have had no more than one 30-day late in the last 6 months.

JL: Is there any other information consumer should know about HARP 2?
FG: You do not need to go back to your current servicer. If your loan is with Wells Fargo, Bank of America, Chase, Citibank, etc., you are not required to go to them. As a matter of fact, it might be harder since they have call centers with registered but not licensed people handling your loan.

To ask Fred Glick further questions on Harp 2 please email him at Fred(AT)FredGlickDOTcom

Filed Under: Jo La Real Estate Investor Tagged With: ,
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